Erstwhile Conservative Leader Michael Howard made a noteworthy contribution to the debate on the economy yesterday.

"It seems to me that we cannot arrive at the right prescription for the future of our economy unless we gain a clear view of why we are where we are. We cannot expect to be led out of our current crisis by a Prime Minister who puts his head in the sand. Before prescription, however, there must be diagnosis, and it is in that spirit that I offer my remarks this afternoon.

Of course it is true—we can all agree on this—that we are in the throes of an international recession, or something worse. Of course it is true that almost every other country is affected in one way or another, to a greater or lesser extent, but we are almost uniquely vulnerable. We are almost uniquely ill equipped to deal with the calamity that has befallen the world, and we need to consider the reasons for that. They are not too difficult to identify.

My right hon. Friend the Member for Witney (Mr. Cameron), the Leader of the Opposition, was quite right, last Friday, to accept responsibility for the things that we got wrong. We certainly failed to anticipate that the crisis we now face was anything like as serious as it has proved to be, but there are two main reasons for our present plight. Both of them were directly the responsibility of the Prime Minister, and, in respect of both of them, we certainly warned of the consequences. I have looked at the record, and I am in a position to answer the question posed from a sedentary position by the Exchequer Secretary earlier, when she asked, “Where were you?” I shall do my best to answer that question during the course of my observations.

The first of the main reasons for our present plight that I, at least, have identified was the ill-advised decision, taken by the Prime Minister in 1997, to transfer supervision of the banking sector from the Bank of England to the Financial Services Authority. The Bank of England had hundreds of years of experience and expertise in supervising the banking sector of our economy. The Financial Services Authority was new. It had none of that experience and none of that expertise, and, as we know, it has since admitted that it fell down on the job.

It has been suggested that the Conservatives criticised the transfer to the Financial Services Authority only with the benefit of hindsight, but that is simply not the case. When that catastrophic decision was taken, my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) was shadow Chancellor of the Exchequer. In the debate on the Second Reading of the Bank of England Bill on 11 November 1997, he said:

“With the removal of banking control to the Financial Services Authority…it is difficult to see how and whether the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse.”

He went on to say:

“The coverage of the FSA will be huge; its objectives will be many, and potentially in conflict with one another. The range of its activities will be so diverse that no one person in it will understand them all.”

That, at least, is one of the answers to the question posed by the hon. Member for Twickenham (Dr. Cable) a few moments ago. My right hon. Friend also said that he feared

“that the Government may, almost casually, have bitten off more than they can chew. The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”—[ Official Report, 11 November 1997; Vol. 300, c. 731-32.]

That was what my right hon. Friend said in 1997. The warning was there; it was clear; it was on the record; and it has, alas, proved to be absolutely prescient.

The second main reason for our current plight is the level of indebtedness that we as a country, collectively through our Government and as individuals, have incurred. Here, too, there were warnings, and they, too, are on the record; I am afraid that some of them came from me. I drew attention on 9 July 2002 when I was shadow Chancellor to the savings ratio, which was then at an all-time low; it has hit many more all-time lows since. On 30 July 2003, I warned that savings had halved under Labour, that the Government were borrowing more and that families were getting deeper in debt. On 17 March 2004, replying to the Budget, I said that it was

When I proposed at the 2005 election that a Conservative Government would make £12 billion of savings, I said that £8 billion of them would go not to cut taxes but to reduce Government borrowing, which was far too high.

Of course, I was not always thanked—I suppose I did not expect to be—for my pains. Anatole Kaletsky in The Times, for example, complained that throughout my tenure as shadow Chancellor, I had been issuing dire warnings about the economic and financial outlook. I had said, he complained, that Labour economic policies were doomed to failure, that overtaxed consumers were living in a fool’s paradise of unsustainable borrowing and that the British economy and the Government’s popularity were kept afloat artificially by a bubble of house prices and mortgage debt. He said that if the Tories started thinking along those lines, we would be making a big mistake. Well, of course, in terms of the outcome of the 2005 election, he was absolutely right, but was he right in the wider sweep of history? I simply set what I said on the record and leave others to decide who it was that was making the big mistake.

Throughout all this time, of course, the Prime Minister was proclaiming that he had put an end to boom and bust—and you know, Mr. Deputy Speaker, I do not think he was trying to deceive us; I think he genuinely believed it. Perhaps the worst thing he did was deceive himself. It was because he was genuinely convinced that he had ended the economic cycle that he did not fix the roof while the sun was shining. After all, if we think that the sun is never going to stop shining, why on earth would we bother to fix the roof? As we know, the Prime Minister is still in a state of denial. That is not the least of the reasons why he is incapable of leading the country out of the mess we are undoubtedly in. It is, I am afraid, a very big mess indeed.

A good deal of the comment on the current crisis seems to revolve around the question: how long will it last? It seems to me that another question is at least as important: what will come after it? The suggestion that is often implicit in the first of those two questions is that next year or the year after, we shall return to the world that we knew two or three years ago. That notion seems to me to be completely misplaced. We will be in a new world, a different world, with challenges every bit as formidable as those we face at the moment. We will be able to overcome those challenges only if we have leadership that is prepared, in the words of the excellent speech made the week before last by my hon. Friend the shadow Chancellor,

“to confront some uncomfortable truths and tell people what they may not want to hear.”

The mess that my right hon. Friends will have to clear up after the next election will present them with a very difficult task, but I am sure that they will not be daunted. They will, after all, simply be discharging the age-old and historical responsibility of the Conservative party to clear up the mess that Labour has left behind. That is something that we have done before, time after time. It is, in essence, what the Conservative party is for. It is what we exist to do: to clear up the mess that Labour always leaves behind.

The sooner we have that election, and the sooner my right hon. Friends can get on with discharging that historical responsibility, the better it will be for everyone in our country."